Sibos 2008 - SIBOS Delegates Called Home to Fight Lehman Fires

18 Sep 2008

SIBOS is overshadowed by external economic shocks. Joy Macknight, Section editor at gtnews, explores the reactions of the delegates and attends the session on what keeps CEOs awake at night.

On the third day of SIBOS, there was a subdued air about the conference as delegates digested the latest news of the financial crisis following Lehman Brothers' rapid demise on Monday. Wednesday saw the Federal Reserves US$85bn bail out of American International Group (AIG) and Barclays' bargain basement acquisition of pieces of Lehman Brothers, including its New York head office. In addition, there have been an increasing number of large bank tie-ups, in order to stay afloat in the turbulent market, such as Lloyds TSB's acquisition of HBOS. Morgan Stanley is also earmarked for an acquisition bid by another major international bank.

As one Australian delegate said on the morning coach to the conference hall: "It's very hard to figure out what to make of it all. On day two, they were saying that the days of investment banking are over; and then the next day they are saying everything is not as bad as it seems." But most analysts are admitting that it is the worst financial crisis since the 1920s.

The conference floor was decidedly less crowded as many executive-level bankers were called back home to find out what risk exposure they have in terms of Lehman's. Some, it was rumoured, flew in Sunday night just to get the first flight back on Monday. This seismic sea change opens up new risks for all financial institutions and, of course, new opportunities, and the banks want their key decision makers back in the office.

This, in turn, has meant a lot of work for SWIFT as it had to scramble to replace its keynote speakers. SWIFT's CEO Lázaro Campos tried to put a positive spin on it by saying that it proves that SIBOS attracts only highest calibre speakers.

Commenting on the latest events in an interview with gtnews, Mark Hale, director at PricewaterhouseCoopers and head of the new transaction banking team, said that he was not surprised by recent events in the financial system because market fragility has been building up for a number of years with the increase in personal debt and mortgage debt and a misunderstanding of the risk involved. "Also, there has been a systematic underinvestment in payments infrastructure, with the industry more focusing on 'keeping the lights on' and compliance rather than modernising. Now the problems stemming from underinvestment are coming home to roost in a crisis." He believes that the crisis has resulted from a lack of leadership from all parties involved and leaders, regulators and shareholders must stake responsibility for what happened.

Hale is also worried about the possibility of draconian regulations being brought in which won't address the fundamentals of how things went wrong, and, in particular, if form takes precedence over substance, or process displaces experienced judgment.

The 'big issue' debate, What keeps CEOs awake at night?, was pertinent as the meltdown of the financial system meant that most weren't getting much sleep at all. The panel consisted of June Felix, general manager, global banking and financial markets, IBM; Hans Van der Noordaa, member of the executive board, ING Group; S. Ramadorai, CEO and managing director, Tata Consultancy Services; Karen Fawcett, global head of transaction banking, Standard Chartered; Brian Stevenson, chief executive, global transaction services, The Royal Bank of Scotland; and Timothy Ryan, president and CEO, Securities Industry and Financial Markets Association (SIFMA). Almost all the participants talked about the importance of talent and getting the right people to make the right decisions, plus efficient and transparent internal processes, to weather the financial storm.

SIFMA's Ryan called on the industry as a whole to raise its hand and admit what has happened. He made a number of proposals for change: the credit rating process has to be modified to give it more transparency to that investors have an understanding about what information has been used to develop the rating; a process, such as asset pricing, has to be put in place to increase confidence for investors; and all components of risk management must be better integrated and monitored. "We have to change the focus to getting the future fixed instead of just fighting fires. It looks messy right now, but we shall get through it," he said with conviction.

Ralph Silva, research director, Europe, at TowerGroup, told gtnews that he believes the financial industry is at least 12 months from end of the crisis and the global economy may be looking at seven to 10 years of slow growth. This environment will have a dramatic effect on the treasury function. "There is a systemic lack of business; treasuries have to revise their forecasts which assumed a continuing growth rate of 5%. Treasury will see a halt of new investment and innovation will become a four-letter word. Corporates will focus their attention on the need to keep the lights on."

He predicts that the major banks will lose between 10-12% of their staff in treasury. He believes that the decrease will not hamper the banks' ability to supply products but there will be less focus on innovation and new product development. In an economic downturn, he points out, what corporates need is basic value. "Banks are trying to add on and sell complex services when really in this climate they should be lowering the price and offer the basics. Treasury services prices are increasing but this won't be accepted by the customer base."

First published on www.gtnews.com